Money flows but the dollar lags behind

Money flows but the dollar lags behind
Money flows but the dollar lags behind

A modern currency must meet the needs of a modern economy. Yet the US dollar is failing. And as currencies around the world become more user-friendly, it risks being left behind. The Federal Reserve is rightly working to remedy the situation, but the government needs to do more to ensure that the dollar remains competitive, within the country’s borders and beyond.

In recent decades, countries from the UK to China have introduced payment systems that allow instant transactions, and payments directly from their bank accounts and at extremely low cost,

According to estimates Boomberg reports, the shift to real-time payments has boosted global economic output by $78 billion annually — meaning faster payments, smoother transactions and accelerated commerce.

But not in the US. Less than 1% of all trades are settled in real time. Faster retail payment systems — like Venmo and Zelle — have only limited uses or coverage. Bank transfers may still take days to process. Card payments, while relatively convenient, incur merchant fees of up to 3%, amounting to tens of billions of dollars a year in additional costs ultimately paid by consumers.

The Fed is trying to address at least part of the problem by launching in mid-2023 a new service, FedNow, which will operate around the clock to replace the nation’s antiquated automated “trade clearinghouse,” which although handles the lion’s share of of payments by value — more than $70 trillion in 2021 — only makes group payments, and only during weekday business hours.

If the effort is successful, it will be extended to private transactions allowing a wide range of direct payments between financial institutions, businesses and consumers.

So far so good. But the rest of the world is not standing still, comments Bloomberg.

Consider international payments. Governments can facilitate trust between banks within their territory, but things get more complicated cross-border. Payments often go through complex routes between correspondent banks, causing delay, risk and expense.

The tax on international remittances, for example, is around 5%, siphoning billions of dollars a year from people sending money to family and friends.

A promising solution is based on cryptocurrencies: A digital form of cash. This could take various forms, such as regulated stablecoin issuances linked to fiat currencies or contracts issued directly by central banks.

Among others, the central banks of Australia, China, France, Singapore and Switzerland have tested such platforms, while the International Monetary Fund supports a more robust version to connect payment systems worldwide.

The US has not been completely idle in this regard. The Fed is exploring the possibility of a digital dollar — and to some extent, the issuer of the world’s dominant currency can afford to wait to learn from the experience (and mistakes) of others.

But such an approach would benefit billions of people, boost global trade and expand access to marginalized people and regions.

“The US must not allow itself to be left behind again,” Bloomberg concludes.

naftemporiki.gr


The article is in Greek

Tags: Money flows dollar lags

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